Transport Secretary Stephen Byers today extended the GNER franchise by two years, until April 2005.

But, in a statement to the Stock Exchange at 3.30pm, Mr Byers said: "I regret that the process to negotiate a new 20-year deal has not proved successful.

"Since Hatfield, it has become clear that a lot more work needs to be done to develop this major infrastructure upgrade."

Mr Byers admitted the Strategic Rail Authority had recommended that the franchise should be awarded on a 20-year deal - but he refused to state which the preferred bidder had been.

The decision casts doubt on GNER's plans for more jobs, station improvements and faster journey times.

Speaking shortly after the announcement, GNER spokesman David Mallender said: "Clearly, we have secured something by extending the franchise by two years.

"But it is obviously not the 20 years we were hoping for.

"We will now have to sit down with the Government and discuss the passenger benefits we can achieve between now and 2005.

"We have made our bid on the basis of a 20-year plan; taking into account new trains and station upgrades.

"It is now time for us to go away and look at how those plans fit with a much shorter timescale."

The Evening Press threw its weight behind the award-winning company with readers, local MPs and companies joining our Back the Bid campaign.

A 20-year deal would have delivered up to £1.6 billion of investment on Britain's flagship rail route between London King's Cross, the East Midlands, Yorkshire, the North East of England and Scotland.

York station was to have been upgraded as a priority in a long-term franchise, and more staff would have been taken on at the headquarters in the city as well as other parts of the Yorkshire and nationwide.

The decision will affect GNER's investment plans, including the introduction of 25 new high-speed tilting trains.

Today's decision ended months of wrangling over the route, including a resubmitting of bids earlier this year after a dispute about the cost of the upgrade of the line.

The first recommendation on the winner of the new franchise by the SRA was submitted to the Department of Transport last December.

But the funding row meant a February deferring of the decision. Then, in April, the SRA said it was establishing a joint venture team that would take forward the line upgrade.

During Prime Minister's question time this afternoon, Ryedale Tory MP John Greenway asked Tony Blair why he had undergone a consultation on rail franchises, if he had no intention of taking note of the results.

Mr Greenway added that GNER was "generally thought to have done a good job", and that "short-term franchises would stifle much-needed investment".

Mr Blair replied: "On the franchises, it is important we have a range of different ways of dealing with them."